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RM plc: Interim Results for the six months ended 31 May 2023
RM plc (RM.) 9 Aug 2023 RM plc Interim Results for the six months ended 31 May 2023 Business stabilising, transformation programme initiated Consortium underperformance clouds value of the rest of the Group
RM plc (“RM”), a leading supplier of technology and resources to the education sector, reports its half year results for the six months ended 31 May 2023. Mark Cook, Chief Executive of RM, said “In the first half of the year, our focus has been on the task of stabilising the business financially and operationally. This has seen us improve controls, processes, and the team’s capability. Alongside this, we have taken decisive action to reduce our cost base and working capital. Whilst we have accomplished a lot, the most material challenge has been the negative impact of the Consortium business which clouds the good progress made across the rest of the Group. The consequences of its slower recovery can be seen in our financial performance and has impacted our expectations for the full year. Now that the ‘heavy lifting’ stabilisation work is nearing completion, the Transformation Programme, which is focused on improving growth and profit, has identified significant continuous improvement opportunities, which are being reviewed, quantified, and prepared for execution. We have made a good early start in actioning these opportunities, but it will take time for them to be reflected in our financial performance. I continue to be excited by the compelling opportunity to deliver value creation in a growing global EdTech market.”
Financial highlights
Strategic highlights
Current trading and outlook Since the period end, RM Assessment and RM Technology have continued to trade well, with contract extensions signed with Education Scotland partnership (Glow) and with Brooke Weston Trust (BWT) in RM Technology, with two new contracts alongside 100% customer renewals for the period in RM Assessment.
As a result of the turnaround actions which have taken place in the RM Technology division, we would expect to start to see the results come through into revenue growth for the business in the second half, and small single digit growth for the full year.
Whilst our stabilisation is nearly complete, the operational issues within Consortium have continued to be a drag on both management time and the overall business, and this is reflected in the financial performance in the first half. We expected to see growth across all our business units and are disappointed by the continuing operational and trading challenges in RM Resources, dominated by Consortium, and exacerbated by the more challenging budgetary environment in schools. As we work to recover sales and win back the trust of our customers, we expect Consortium trading to continue to be below where we would expect it to be, impacting our expectations for the Group’s full year adjusted operating profit. We now expect to deliver Group adjusted operating profit on or around breakeven for the full year, and in excess of £10million of identified annualised cost savings to benefit in FY24.
1.Throughout this statement, adjusted operating (loss)/profit and EPS are Alternative Performance Measures, stated after adjusting items (See Note 2) which are identified by virtue of their size, nature and/or incidence. The treatment of adjusted items is applied consistently period on period and is consistent with the way that underlying trading performance is measured by management. 2. Amounts at 31 May 2022 have been restated consistently with the adjustments made at 30 November 2022, see Note 2
Presentation and webcast details A recording of the presentation for investors and analysts will be available at 9.00am today via a live webcast and on demand at the following website: There will be a live Q&A session following the webcast accessible via a conference call:
For additional details and registration for the webcast, please contact Headland Consultancy on +44 203 805 4822 / rm@headlandconsultancy.com.
Contacts: RM plc investorrelations@rm.com Mark Cook, Chief Executive Officer Emmanuel Walter, Chief Financial Officer (interim) Fiona O’Nolan, Investor Relations
Headland Consultancy (Financial PR) +44 203 805 4822 Stephen Malthouse (smalthouse@headlandconsultancy.com) Chloe Francklin (cfrancklin@headlandconsultancy.com) Jemma Savage (jsavage@headlandconsultancy.com)
Notes to Editors: RM provides market-leading products and services to educational institutions, exam bodies and international governments which improve, simplify and support education and learning. The education sector is transforming, and RM is well positioned to capitalise on this through its three divisions.
Business Review Strategic and operational update The first half of the year was dominated by the extraordinary closing of the prior year’s financial reporting, the launch of a new “Evolution” ecommerce platform for the Consortium business in March, and a new automated distribution centre which went live shortly after that. Through the extended year-end process, we collectively tackled and overcame a number of challenges to ensure our financial stability including;
The first half focus has been the need to stabilise the business and mitigate the considerable negative impact of the Consortium business, which continues to hold back the overall performance of the Group in the current year. Alongside this we have focused on bringing RM’s intellectual property in house; improve controls, processes, and finance team capability; implement cost savings; and reduce our working capital. We have also taken the decision to reduce our headcount by circa 325 FTE in a number of operational and support areas. These combined actions have expected annualised cost savings in excess of £10million in FY24. These necessary actions across a number of operational areas have helped get the business back onto a stronger operational footing and include:
After the challenges faced in the prior year, our priorities for the remainder of FY23 remain to strengthen our financial position, review the IT enterprise architecture, and embed our Transformation Programme across the business. When I first reviewed the business, I used the phrase ‘simplify, strengthen and succeed’ to frame the phases the company needed to progress through to fully get back to financial and operational fitness. Six months into my role, I have had the opportunity to take a deeper look at our people, products, services and IP and I believe there are substantial opportunities to deliver greater shareholder value from our portfolio of businesses. I therefore focused my efforts in the half on designing and commencing our Transformation Programme, with the initial priority of stabilising the business, which we expect to have been achieved by the year end, but also quickly taking actions which have some benefits in the short term as well as in medium and longer term. We have recruited an experienced Transformation Director, to execute on the Programme workstreams. Strengths, opportunities, and recovery within our portfolio RM has a fantastic portfolio of managed services, IP, and digital platforms with leading market positions, and our focus is to better leverage the product opportunities in the education sector as it continues to embrace digitisation and ensure a sharper focus on sales & marketing, product, customer excellence and satisfaction. We operate across three standalone divisions – RM Resources, RM Assessment and RM Technology, with RM Resources further split into three business units of TTS UK and TTS International, which design and own our proprietary products for schools, and Consortium, our UK school supplies business. Our portfolio of businesses is not well understood by the market, and the business has not been taking full advantage of its enviable market positions across education and learning in the UK and internationally. Our divisions operate in a market with structural growth drivers, strong market positions and continued advancement of technology across the education sector, with the global EdTech market expected to grow at a CAGR of 13% to 2028. RM Resources has three strategic business units: TTS UK and TTS International collaborate with teachers and educational experts from across the globe to create unique and innovative learning resources and learning environments for children in more than 115 countries. Each year TTS’s educational experts develop hundreds of unique curriculum-aligned resources, from concept to creation, with many of them receiving industry awards. Consortium UK has been supporting learners and educators for over 50 years, supplying everything from classroom essentials to cleaning supplies, sports equipment to musical instruments, with over 35,000 carefully curated products designed to support the whole school or nursery. This is underpinned by bespoke account management and digital shopping solutions that help to save time and money for our customers. Across TTS, encompassing both UK and International, we continue to see positive demand for our unique in-house developed IP, highlighting the unique value of our curriculum focussed learning resources in supporting teachers and practitioners in improving educational attainment. Leveraging TTS’s recognised educational expertise, the brand also successfully launched its first CPD accredited Early Years podcast series and its associated assessments which has attracted more than 80k downloads and has been nominated for three categories at the UK Content Awards. After the delayed launch in March of a new and much enhanced “Evolution” ecommerce platform for the Consortium brand, which completed the planned technology transformation in the Consortium business unit, marketing activities began to drive customer volumes. However, the pace of the sales recovery is proving to be slower than anticipated as customer confidence has been dented by problems of our own making and needs to be re-built. This is continuing to impact the financial performance of the division. Following the completion of the IT and distribution centre implementations the division is returning to a stable footing after an extended period of organisational and customer disruption which primarily impacted the Consortium brand. With new technology underpinning operations and ecommerce, management focus now shifts to improving customer return within Consortium and continuous improvement opportunities leveraging TTS’s market-leading IP globally and optimising the new infrastructure to increase customer value. RM Assessment is a global leader in platform delivery of digital assessment and exam marking solutions for learners, accreditors, and professional bodies. The division has made positive progress in the first half, with successful delivery of the live exam and marking sessions for customers across the professional qualifications, language testing and school exam segments of the market. H1 saw a 100% customer renewal rate with £9.5m of customer contract extensions demonstrating the ongoing commitment of customers to our services. Two new customers were secured in the Professional Qualifications market, worth an initial £1.2m over the next 3 years. The first is a contract to digitise the marking of paper exams for technical and vocational qualifications, with a customer taking this first step on their journey to digital examinations. This service is already live, and first exam sessions have been delivered successfully. The second is a contract for an end-to-end digital assessment solution to support those training for Accountancy qualifications. This uses the whole of the RM Assessment portfolio to bring digital exams to life as candidates progress through their learning journey to qualification. First live exams have already been delivered, with another positive candidate experience being reported back. The division's focus on leading customers through the journey to digital assessment maturity was recognised by an award at the e-Assessment Association conference, for the ‘Most Innovative Use of Technology in Assessment’ for its exam malpractice service, recognising RM's continued commitment to overcoming the challenges of digital adoption and enabling the education industry. RM Technology is a strategic partner for schools, helping them to drive more engaged learning, more collaborative teaching and better outcomes through technology by providing platform-based managed services, ICT solutions and value-added reseller services to schools, authorities and trusts. Following a restructuring in FY22 and with new leadership now established, the Technology division made good progress in the first half on improving its operating model and efficiency, with both active value creation and defensive value capture initiatives underway. The sale of RM Integris and Finance was also completed in the half and cash proceeds received. The division has maintained revenue stability across both Connectivity and Digital Platforms (Software) whilst improving the gross margin within those business units. The Hardware strategy and the onboarding of key partners has improved performance since FY22. Initiatives and market projects including the DfE’s Connect the Classroom (CTC) have been established, generating a pipeline valued at £11.5m with an expected conversion rate greater than 50%. Focus on Services continues which has shown growth, improved upsell and cross-sell which has allowed RM to deliver more value to existing clients whilst improving share of wallet. We were pleased to extend our relationships with Education Scotland (Glow) and Brooke Weston Trust (BWT). However, three large customers lost at the start of FY22 have impacted revenue in the half and will continue to do so for the balance of FY23. Gross margin rebuild across Services, Connectivity and Digital Platforms is progressing well whilst Hardware sees a slight dip as it moves into volume sales in line with its strategy to target Multi-Academy Trusts (MAT). Customer retention remains high at 95% showing that RM Technologies’ relevance and satisfaction continues to be a driver of its success. These operational and strategic improvements will take time, and profit recovery will lag revenue growth, but RM Technology continues to benefit from a strong market position and channel reach.
Transformation Programme and strategic roadmap We embarked on an ambitious Transformation Programme in the first half, and our priority has initially been focused on Phase 1 which was to stabilise operations and financials, following a very challenging 2022, and which continues to be impacted by the ongoing poor trading performance within Consortium. Whilst we have accomplished a lot, these challenges will continue to dominate the full year results and cloud the good progress across the rest of the Group. The Transformation Programme has five clear workstreams; Stabilisation, People & Teams, Finance & Corporate, Divisions, and Strategy, and the identification, execution and benefit realisation are broken down into six monthly phases. In the Stabilisation phase we have identified opportunities for growth, and operational efficiencies – some of which we have actioned already, albeit they do not yet positively impact our financial performance. We expect the benefit from these actions to flow from FY24. As RM celebrates 50 years of service this year, we are excited by the opportunity to deliver value creation in a global EdTech market growing at 14% annually, and the drafting of the strategic roadmap for the business is expected to conclude in the second half, setting out our plans for delivering that value. We are committed to properly understanding our business processes in order to define the architecture required, enabling us to drive down our overheads. We remain focused on the substantial IP opportunities which we see within our TTS businesses, as well as developing the broader opportunities within the global EdTech market for our proprietary technology and assessment platform businesses; with the aim of delivering fully digital assessments to the market and providing the best connectivity and managed service across platforms to the education sector.
Financial review Group performance Group revenue decreased by 11% to £87.6m (H1 2022: £97.9m) largely driven by lower trading volumes in RM Resources, in particular the Consortium business as it recovers from both the past mismanagement of the IT implementation programme and the challenging education market conditions. Whilst Resources had a difficult H1, the TTS International business grew year on year by 18%. RM Technology revenues declined by 8% reflecting contract losses in the Services business in FY22 and included £1.3m relating to the sale of excess IPv4 addresses. Subsequent sales of IPv4 assets have been classified as other income. Revenues in the RM Assessment division grew by 8% reflecting the results of the improved sales pipeline and the new contracts won in FY22. |